Monday, September 13, 2010

Romanian Political Turmoil Won’t Derail Budget Cuts, S&P Says

Sept. 9 (Bloomberg) -- Romania’s political turmoil won’t reverse the changes made by the government under the terms of its International Monetary Fund-led bailout package or affect its credit rating, Standard & Poor’s said.

“We don’t expect that political disagreements could impede the country’s compliance with its structural reform and budgetary targets,” Marko Mrsnik, an S&P credit analyst, said yesterday in a phone interview from London. “Our current outlook is stable, implying the risks are balanced at this rating level.”

Prime Minister Emil Boc replaced six members of his Cabinet, including the economy and finance ministers, on Sept. 3 after the opposition said it would seek to topple the government this year by filing a motion of no-confidence. Boc survived a similar motion in June by eight votes.

The European Union’s second-poorest member is relying on the 20 billion-euro ($26 billion) bailout to stay afloat after its worst recession on record. Boc has faced months of criticism from unions and opposition leaders for implementing austerity measures, including a 5 percentage point increase in the value- added tax and a 25 percent cut in public employee wages, to qualify for the loans.


Mrsnik said Romania’s BB+ credit rating, the highest junk grade, may “eventually” be raised if the government pushes ahead with reforms beyond the current IMF-agreement, which expires in May 2011. S&P gives Romania the same rating as Greece and Azerbaijan.

If Romania builds “a sustained track record of fiscal performance, including improvement in the fiscal framework and ensuring an orderly containment of vulnerabilities in the financial sector, we could eventually raise the ratings,” he said. “Structural improvements in the economy, more than cyclical recovery in growth, are key for improvement in the rating outlook.”

Romania’s economy contracted 7.1 percent last year after growing the same amount in 2008 as a lending boom turned to bust. The economy is expected to shrink 1.9 percent in 2010 before expanding 2 percent in 2011, according to the IMF.

“We do expect economic growth to recover gradually and to be more balanced than in the run-up to the crisis, when it was predominantly credit-fueled,” Mrsnik said. “As a consequence, while Romania preserves high-growth potential, we expect growth rates over the medium term to be lower than previously, when they reached 7-8 percent per year.”

--Editors: Alan Crosby, James M. Gomez

To contact the reporter on this story: Irina Savu in Bucharest at Andra Timu in Bucharest at

To contact the editor responsible for this story: James M. Gomez in Prague at

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